Broad-based progress for Orkla
The operating profit of NOK 564 million is 53% higher than last year's figure after adjustment for non-recurring items. Substantial volume growth at Baltic Beverage Holding (BBH) together with an improved market situation and positive effects from the "Redesign" programme at Chemicals were the main contributors to the increase.
Orkla's turnover rose by NOK 0.5 billion to NOK 10.1 billion. The Norwegian grocery market has grown by just over 1% in volume terms so far this year, while figures from Sweden indicate 2.5% growth.
Orkla's share portfolio achieved a return of 1.1% in the first four months, i.e. appreciably higher than the Oslo Stock Exchange. Realised gains totalled NOK 621 million, in which the sale of the group's stake in Elkjøp was the biggest single transaction. Earnings per share before non-recurring items and goodwill amortisation came to NOK 4.1 compared with NOK 2.3 in the first four months of 1999.
BRANDED GOODS:
- Orkla Foods recorded an operating profit of NOK 172 million. Turnover for continuing business totalled NOK 3.4 billion, on a par with last year's figure. Market positions were by and large maintained or strengthened. The restructuring process at Procordia Food is proceeding as planned. In Norway Stabburet continues its positive trend. Orkla Food Ingredients is performing favourably. While Orkla Foods International increased its turnover, its profit performance remains weak. Orkla Foods has taken over several new businesses, the biggest acquisition being the purchase of 50% of Jästbolaget in Sweden. Moreover, businesses have been taken over in the Baltic States and Hungary.
- Orkla Beverages' operating profit of NOK 32 million before other revenues and expenses represents an improvement of NOK 67 million. Turnover rose by 18% to NOK 2 billion. Substantial volume growth at BBH is the main explanation both for the higher turnover and improved profit performance. The Nordic business maintained turnover levels despite somewhat lower volumes. The total market for beverages (beer, soft drinks and mineral water in volume terms) expanded by 3% in Norway and was stable in Sweden. Ringnes maintained its position in Norway. As the first to do so, Pripps has moved to improve profit by raising prices on low-price beer products in Sweden. As a result, the company's share of the beer market fell by 7 percentage points from the first four months of last year and by 3 percentage points compared with the average for 1999. The operating profit of a negative NOK 26 million before goodwill amortisation improved by NOK 14 million. The "Competitive Edge" cost reduction programme, designed to cut costs in the Nordic business by NOK 600 million, is now in its final year and is on schedule. BBH's operating profit before goodwill amortisation rose by NOK 58 million to NOK 125 million (Orkla's 50% interest). Operating revenues rose by 77% to NOK 628 million (50%). BBH recorded a volume growth of 74%. The overall market for beer grew by 33% in Russia, 38% in Ukraine and 16% in the Baltic States. BBH continues to take market shares and now accounts for 25% of the Russian market.
- Orkla Brands' operating profit rose by 14% to NOK 123 million. Continuing business reported a turnover of NOK 1.4 billion, i.e. on a par with last year's figure. Biscuits showed an improved sales and profit performance, accompanied by a good outturn for the cost-rationalisation programme. Confectionery showed a favourable cost and margin development, and profit continued to improve. Stiffer competition and weaker distribution resulted in a poorer sales and profit performance for Household Textiles in Sweden. Snacks Denmark met its production target for potato crisps. In Norway this area remains under pressure from stiff competition.
- Orkla Media reported a 2% increase in turnover to NOK 1.1 billion for continuing business. The operating profit is down to NOK 56 million due to poorer results for Direct Marketing. In Norway improved circulation figures are reported both by Newspapers and Magazines. Newspapers benefited from an increase in advertising volume and Magazines from somewhat higher advertising prices. Newspapers Eastern Europe reported profit on a par with last year. Direct Marketing reported a substantial fall in profit compared with last year. Sizeable expenditure on far-reaching IT conversion of the Swedish business will continue until the end of August. Several companies in the Internet/Electronic Publishing area have performed favourably, and investments have been made in new operations.
CHEMICALS:
Turnover fell by 1% to NOK 1.8 billion. The operating profit before other revenues and expenses rose by NOK 59 million to NOK 101 million. All profit areas reported improved results. Speciality Cellulose showed the biggest improvement aided by prices, exchange rates and productivity. The productivity enhancement programme at the Sarpsborg plant is on schedule, and appreciable improvements have been made in capacity utilisation and production quality.
FINANCIAL INVESTMENTS:
The total market capitalisation of companies listed on the Oslo Stock Exchange fell by 5.2% in the first four months. The value of Orkla's share portfolio rose by 1.1% thanks to a sound development for Nokia and Nycomed Amersham and the admission of StepStone to stock exchange listing. The pre-tax profit rose by NOK 334 million to NOK 750 million. Realised gains of NOK 621 million are appreciably higher than last year. The net asset value of the share portfolio rose by NOK 123 million to NOK 16.7 billion in the first four months. The portfolio's market value was NOK 21.9 billion at end-April, of which foreign investments accounted for 40%. Unrealised capital gains on the portfolio came to just over NOK 9 billion.
EQUITY:
Orkla's net interest-bearing debt rose by NOK 3.1 billion to NOK 18.8 billion. A positive cash flow is expected for the rest of the year. The balance sheet total is NOK 44.9 billion and the equity ratio 33.5%. This ratio rises to 44.6% when unrealised capital gains before tax are included. The Financial Investments area purchased shares in an amount of NOK 1.2 billion, net, in the period. The Industry area's free cash flow from operations is NOK 0.6 billion down on last year's figure, mainly due to a transient increase in working capital.
OUTLOOK:
The Board of Directors of Orkla states that expectations of further interest rate increases and a steep fall in the value of a number of companies operating in the "new" economy could have a negative impact on the stock market. BBH is expected to continue to expand, albeit at a slower rate than in the first four months of the current year. No significant change is expected in the market parameters for Orkla's Nordic branded goods business. Profit for the Chemicals area is expected to continue to improve after a weak performance in 1999.
For report with tables follow the enclosed link: